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Roth Conversion

December 6th, 2016 at 09:28 am

DH rolled his 401k from his old company to his new company 401k. He then withdrew $60k and we are converting that to his Roth IRA. We decided on $60k to max out our taxable income in our 25% bracket. We might as well since we are at that level and going forward I suspect it'll be higher so converting any IRA or 401k money to a Roth IRA will likely not be worth it.

I've been doing a lot of thinking about some saving goals I have. My car is 2010 which isn't old and it only has 90k miles on it bought new. But I'm thinking maybe in 3 more years when it's 10 years old maybe we'd get another car and maybe it's time to start saving so we don't have payments? $500/month for 3 years?

I also think we need to start increasing our college savings. $2k/year per kid doesn't seem like enough. I'm thinking if we increased it to $4k/year per kid that would put us in a better position. It another $325/month for both kids.

I guess since 2017 is about to start it's making me evaluate financial goals. Once we buy a house and settle into a routine monthly budget I think it'll be easier to give every dollar a name.

Have you considered your 2017 financial goals?

6 Responses to “Roth Conversion”

  1. creditcardfree Says:

    Good plan to save a little more for college. We save $2K most years, and it has help tremendously. Along with scholarships and cash flowing some things we have managed two years without loans. I have no plans to replace our vehicles yet, they are both 2007s. I should start saving a little for these. I think I could do this during the years we don't have to pay college tuition because of the Post 911 GI Bill. I'll be giving our goals more focus soon!

  2. ceejay74 Says:

    I was reading that with simplified tax brackets in 2017 and probably tax breaks for high-income people coming down the road via Trump, Roths may not be as good for high earners; traditional IRAs could be better. Haven't investigated too seriously myself.

  3. rob62521 Says:

    Good for you to save more for college.

    You are smart to save now for a car. We try to do that for many items. We have quite a few different savings accounts for different things we save for. It helps us keep track of how much we have saved.

  4. Dido Says:

    Always smart to top off the current bracket when doing a Roth conversion as long as your future tax rate is likely to be higher in the future (under Trump's proposal, taxable income of 0-75K will be in the 12% bracket, income of 75K-225K in the 25% bracket, and income > 225K in the 33% bracket; to figure your bracket start with your expected AGI from the bottom on page 1 and instead of subtracint your exemptions and itemized deductions, subtrct 30K to figure the income on which your bracket is based.

    Of course moving income into a tax-free bracket is always good if you can afford to do so; and especially if you can pay the taxes on the conversion from moneys you have OUTSIDE of the IRA account rather than decreasing your money.

    As to the comment above about high earners and regular vs Roth IRAs, note that most high income people cannot make a traditional IRA contribution; the ability to do so is phased out for incomes between 98K-118K MFJ.

  5. LivingAlmostLarge Says:

    we're phased out of the Roth IRA usually and it probably wouldn't benefit us. This year with only half a year of income it made sense. Going forward it won't

  6. FrugalTexan75 Says:

    My car is a 2010 and just coming on to the 90K miles mark. I started putting $75mo way for its replacement - hopefully not for another 6 or 7 years.

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